Royal Gold, Inc.
RGLD
benefits from higher metal prices, primarily from safe-haven demand stemming from persistent geopolitical tensions. Focus on ramping up new projects, acquiring new royalties and streams and adding high-quality long-life Khoemacau development projects is aiding growth.
Better-Than-Expected Q1 Earnings
Last month, Royal Gold reported adjusted earnings per share of 99 cents in first-quarter 2022, beating the Zacks Consensus Estimate of 83 cents. The bottom line also improved 18% year over year.
Higher Metal Prices to Drive Revenue
The company will benefit from higher metal prices this year. Silver and copper prices have been gaining on safe-haven demand stemming from persistent geopolitical tensions and concerns about slowing global growth. Copper demand is surging on increasing demand for electric vehicles and wind farms, solar panels and the power grid. Gold continues to be the most significant revenue driver for Royal Gold. In the March-end quarter, the company generated 71% of revenues from gold, 10% from silver and 14% from copper. Currently, gold prices are trading at around $1,854 per ounce on heightened global recession risks. Royal Gold expects a total Gold Equivalent Ounces (GEO) sales volume of between 315,000 and 340,000 GEOs for the current year.
Growth Factors Related to Operators’ Mines
Royal Gold’s revenues are derived entirely from stream and royalty interests in properties owned and operated by third parties.
Barrick Gold
GOLD
, Pueblo Viejo mine operator, continues to advance with the process plant expansion and proposed tailings storage facility to extend mine life. It estimates that the project is likely to significantly increase throughput and enable the mine to maintain average annual gold production of approximately 800,000 ounces after 2022. Barrick expects its Pueblo Viejo mine to produce gold between 400,000 and 440,000 ounces in 2022.
Centerra, the Mount Milligan mine’s operator, obtained an amendment to the environmental assessment certificate in January 2022, which will allow access to long-term surface water sources for the life of the project. Water storage in the tailings storage facility as of Mar 31, 2022, is expected to secure continued operations for one year or longer. Centerra continues to expect the Mount Milligan mine to produce between 190,000 and 210,000 ounces of gold and copper production in between 70 million and 80 million pounds.
In 2019, Royal Gold entered into a silver mine life-purchase agreement with Khoemacau Copper Mining Limited (“KCM”) to purchase and sell silver from the high-quality long-life Khoemacau copper development project in Botswana. KCM expects the mining rate will continue to increase steadily from current levels and reach full sustained production by fourth-quarter 2022. KCM estimates Khoemacau to produce 155,000 to 165,000 tons of high-grade copper and silver concentrate a year over a mine life of 20 years. Royal Gold’s interest in the payable silver from Khoemacau increased from 90% to 100% after KCM drew the remaining $26.5 million stream advance payment. After the final draw on Mar 14, 2022, Royal Gold holds the right to receive 100% of the payable silver produced from Khoemacau until the delivery of 40.0 million silver ounces and 50% thereafter.
Royal Gold acquired a 1.0% net smelter return royalty on certain areas of the Red Chris Mine. This royalty acquisition adds another high-quality and long-duration asset to the company’s portfolio. The Red Chris Mine is a world-class copper/gold project in a mining-friendly jurisdiction. This royalty can contribute significant revenues to Royal Gold for decades. Moreover, RGLD acquired a gold stream from
Ero Copper Corp
’s
ERO
NX Gold Mine in Brazil. Ero expects current-year gold production from the mine to be between 39,000 and 42,000 ounces. Its NX 60 project is likely to bring the new vein into the mine plan in 2024 and is expected to sustain longer-term gold production of approximately 60,000 ounces per year.
Price Performance
Over the past six months, Royal Gold has gained 14.3% compared with the
industry
’s growth of 3.4%.
Image Source: Zacks Investment Research
Zacks Rank & A Stock to Consider
Royal Gold currently carries a Zacks Rank #3 (Hold).
A better-ranked stock in the basic materials space is
Allegheny Technologies Inc.
ATI
. Allegheny has a projected earnings growth rate of 869.2% for the current year. The Zacks Consensus Estimate for ATI’s current-year earnings has been revised 27.3% upward in the past 60 days.
Allegheny’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 128.9%, on average. ATI has gained around 15.2% in a year and currently sports a Zacks Rank #1 (Strong Buy). You can see
the complete list of today’s Zacks #1 Rank stocks here.
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